Rippling’s 6 Pillars of Policy: How to create a bulletproof expense policy

According to Rippling’s State of spend report, a concerning 66% of companies end up reimbursing out-of-policy spend, while only 38% of finance leaders feel in control of their out-of-policy spend.

The culprits? Convoluted approval chains, end-of-month surprises, countless logins, and automated policies that provide a false sense of safety.

Here’s exactly how to reconfigure your expense policy infrastructure into a well-oiled (and powerful) system that is additive rather than encumbering to your business.

Rippling’s 6 Pillars of Policy

Rippling Controller, Vipin Sethi, created the 6 Pillars of Policy to help any business build robust expense policy infrastructure, regardless of their spend management solution. The result: a game-changing system that catches outliers, preemptively stops waste, and reduces administrative burden.

1. Identify a strategic purpose

An expense policy should not simply reduce expenses. It should serve as a strategic lever that directly supports critical business objectives. This can range from ensuring that employees deploy capital to the right functions or initiatives, at the right time, to strengthening areas of compliance for upcoming audits.

How: To create this direction, finance leaders must align with leadership and identify key business initiatives that require focused (or reduced) spend or a more targeted expense policy. Tracking relevant metrics, such as margin expansion, compliance rates, or revenue growth from a specific channel can validate the effectiveness of the new policy.

Example: Data company Edge Delta was rapidly transitioning from a startup to a midsize SaaS enterprise. Their key objective while scaling the company was twofold: 1) reduce manual work and free the finance team to act more strategically, and 2) become granularly compliant as they approached their first-year audit. To achieve this, leadership allocated capital toward implementing Rippling Spend so they could build automated financial policies and custom controls. This kept administrative work from ballooning, and the team received positive feedback from auditors.

2. Maintain clarity & consistency 

Clarity and consistency are key ingredients to any expense policy to  avoid confusion and gray areas for judgment. This results in fewer out-of-policy expenses and less time spent on  verification.

How: Companies should publish clear, easy-to-find, self-serve documentation that outlines authorized versus unauthorized transactions for employees across departments, roles, and locations. With tech-enabled tools, finance teams could enforce the same automated policies across corporate cards, reimbursements, and business travel to improve consistency. 

Example: Business application suite Rippling posts its travel policy for ridesharing in an easily accessible Confluence file. It states that all employees “must take the lowest-cost service available. For example, if using Uber, employees must use UberX and not a higher level of service.”

3. Proactively enforce it 

The best time to stop rogue spend is before it happens. The higher the volume of expenses, the more work is needed to close the books. Avoid the hassle of clawing back reimbursements, reduce out-of-policy expenses, and ultimately lessen administrative work by taking preventative measures to avoid overages and erroneous spending. 

How: 61% of project managers say the use of technology reduces project error and cost overruns. Implementing automated granular approval workflows prior to kickoff and proactively communicating upcoming budget usage and can help reduce overages. Tech-enabled corporate cards can also block out-of-policy spend before a purchase goes through. Finance teams should use them to control budgets by setting designated cards and credit limits for each department, manager, or even project.

Example: Background screening company Vcheck Global sets custom restrictions on the types of purchases employees can make depending on their role and enables spending limits predetermined by different departments. Transactions get declined if employees try to use their cards for restricted purposes.

4. Build with granularity

One-size-fits-all policies assume everyone should be spending in the same way. But in reality, what works for an engineer will not work for a sales director. Granularity allows policies to be tailored to the needs of employees and the business, and it also lends itself to a more watchful expense policy.

How: Create expense policy and approval workflows based on dollar amounts and employee attributes, such as level, role, department, tenure, and location.

Example: Women’s shapewear brand Honeylove automatically routes approvals to different reviewers, customized based on the expense dollar amount. This has compelled employees to become more attentive to what they buy and has effectively reduced reckless spend.

5. Demand real-time visibility

To enable more proactive enforcement, try to build as much real-time visibility into company spend as possible. This decreases end-of-month surprises and enables teams to create reports quickly. Strong expense policy systems should catch outliers and identify mismatched expenses by leveraging reliable, frequently updated data. 

How: Create dashboards that pull and compile refreshed data from different resources. Use tech-enabled corporate cards that show spend as it happens. Consolidate your enterprise tools to improve the connected nature and quality of financial data.

Example: Healthcare technology company Andros created real-time dashboards and reports built on reliable data from across their organization by consolidating 6 disparate HR, IT, and finance software tools into a single platform, Rippling. This helped reduce their month-end close process to 3 business days from the previous 10 business days, and saved the company $100,000 in licensing and SaaS costs.

6. Continuously refine infrastructure

Company budgets and priorities change. Teams should continuously refresh both the expense policy and the infrastructure it is built upon to follow suit. This can yield increased efficiencies and free finance teams to solve hard problems rather than conduct administrative work.

How: Identify processes to automate, update your policy consistently, and direct spend to the right focus areas for your business.

Example: Marketing company Emotive identified reimbursements as a time suck for their team. They refined their system to include automated reimbursements, and they have since reduced time spent by 75%. This created more time for the finance team to work on value-adding tasks that drive business outcomes.

Keep learning from expert policy makers 

Watch our on-demand webinar with Vipin Sethi, Rippling's Controller and former PwC Audit Director with 15 years of experience.

You'll learn how to:

• Inject meaningful business strategy into expense policy
• Revamp expense policy infrastructure with the 6 Pillars of Policy
• Implement the right tools & processes to control spend

This blog is based on information available to Rippling as of September 13, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.